Investigating successful performance measures for spare part providers operating as cost centers – based on the case study in an international organization

Abstract

The research finds a solution to the problem of measuring performance for a cost center that is in the aftermarket supply business. It is based on a case study at Volvo Group’s Service Market Logistics division responsible for supplying spare parts to its dealers. Being a cost center has proved very challenging in finding the right performance measures for the business. The measurement used by the case company was Deliveries to Standard (DTS) which was used to measure the volumes delivered by its distribution centers and make comparisons of their performances. DTS is a measurement of value, and its use for performance evaluations was doubted. This study uses Data Envelopment Analysis for determining a comprehensive performance picture of such an organization. It finds that value can be used as a measurement of performance under the right conditions. Also, it concludes that the complete performance of a spare part supplier operating as a cost center cannot be measured by one single metric. To determine performance outgoing volume, costs, and service level should be considered.